Al-Etihad Insurance CEO says working on dividend policy, Saudi equity represents 5% of investment portfolio

Al-Etihad Cooperative Insurance Co. is preparing a policy for dividend distribution, which will be submitted soon to the board of directors, company CEO Hussam Alkannas told Argaam in an exclusive.

The company’s net incurred claims dropped 28% year-on-year (YoY), while net earned premiums decreased by 7%. In Q2 2020, Al-Etihad earmarked additional premium allocations of SAR 25 million to mitigate the impact of extending vehicle insurance policies by 60 days without charges.

In the third quarter of 2020, the insurer released SAR 7.6 million of these provisions, and is expected to reduce these provisions gradually in the upcoming three quarters.

Al-Etihad also allocated further provisions of SAR 3.6 million for the medical needs of the insured in Q2 2020, of which SAR 1.8 million was released in Q3 2020.

The insurer reported motor insurance sales of SAR 337 million, or 66%, of total sales in the nine months ending September 2020. Medical insurance sales hit SAR 136 million, or 27% of total sales. Other types of insurance coverage reached SAR 37 million, or 7% of total sales.

Al-Etihad’s market share stood at 2.33% by 2019-end. However, the compulsory vehicle insurance is likely to boost the sector, as it will increase the number of insured and vehicle insurance policies.

On the other hand, Alkannas said: “We expect the positive impact of the coronavirus pandemic to overshadow the negative crisis fallout. The profit of insurance companies is forecast to rise in 2020, when compared to the previous year.”

Speaking on potential mergers with other market players, Alkannas pointed out that the merger option is on the table; however, there is no suitable option until now, especially in light of Al-Etihad’s solid financial position and strategy.

“We cannot sacrifice our position for higher market share,” he noted.

Accordingly, a possible merger depends on the availability of a good option that opens new horizons for the company through offering new products or cadres, so that it can have a new and profitable client base.

“An acquisition or a merger option must ensure balance between the interest of clients and our responsibility toward shareholders.”

Elsewhere, Alkannas said that Al-Etihad’s strategy still aims to boost the capital base by at least 25% in the short term, based on the expected performance until the end of this year.

The total value of the insurer’s investment portfolio reached nearly SAR 1 billion. The investments that normally exceed low risks, including Saudi equities, account for 8% maximum of that portfolio.

Investments in Saudi equities account for almost 5% of Al-Etihad’s total portfolio, which is the key reason behind higher profit in the third quarter of 2020, Alkannas explained.

Losses were mainly incurred, as the company recognized impairment asset losses of SAR 7.7 million, in line with the applicable IFRS. The COVID-19 pandemic hit these assets, Alkannas explained.

“Though that amount seems huge, it just represents less than 1% of the total value of our portfolio.”

On the other hand, gains of SAR 6 million were recognized under the Saudi equity portfolio in the Q3 2020 income statement on the reassessment of other investments.

“Investments in the Saudi equities account for almost 5% of Al-Etihad’s total portfolio – the key reason behind an over four-fold surge in the third-quarter gross profit. Net profit before Zakat also more than doubled YoY,” Alkannas concluded.